An update on the energy poverty situation in Lithuania

The concept of energy or fuel poverty is still poorly known in policy and academic circles beyond a few EU member states that are more advanced in this (UK, Ireland). There are a few reasons to believe that Lithuania may be badly affected by this problem. Affordability of heating services primarily is a topic of heated discussions at multiple levels – from individual households to national policy-making debates. Nevertheless energy poverty (energetinis skurdas in Lithuanian) as a concept is still somewhat a novelty. The causes and consequences of energy poverty are not viewed systematically. Lithuanian Responsible Business Association hosted probably the first seminar on energy poverty in Lithuania on June 1st, 2017.

Energy poverty is not a typical topic discussed in the forums of socially responsible businesses. This topic is a direct responsibility of some companies, e.g. energy companies, but at the same time energy poverty may be one of the key issues in understanding welfare and well-being in some countries and regions and, therefore, relevant to the responsible business community. Lithuania maybe one of the most affected countries by energy poverty among the EU member states. According to the EU Survey on Income and Living Conditions 31.1 % of inhabitants of Lithuania could not afford to keep their house adequately warm (second highest indicator among the EU countries after Bulgaria) and 17% reported to live in housing affected by dampness, draughts and leaks in 2015.

CURE’s Nora Mžavanadze gave a brief introduction to energy poverty definition, causes, consequences and policy applications – a systemic view of energy bills as a trap of poverty together with its implications for human health, productivity, air pollution, comfort, greenhouse gas emissions, energy security, public finance, economic development and even emigration. The second part of the presentation included a brief introduction to energy poverty related projects conducted by the researchers of CURE – European Energy Poverty Observatory, project EVALUATE and project COMBI. The last part of the presentation has opened up a few topics for a discussion on the aspects of energy poverty situation in Lithuania in relation to the latest legislation changes (see below a discussion on the legislation changes with implications for energy poverty).

Photo by Paulius Stonis, Lietuvos Energija

Mme Jūratė Cvilikienė, director of the Swedbank Finance Institute in Lithuania, presented the trends in household income and expenditure in the capitals of the three Baltic States – Vilnius, Riga and Talinn. According to Eurostat, on average 46% of household consumption expenditures in Lithuania are devoted to necessities – food, housing and transport. This figure stands at 52% in Latvia and 44% in Estonia. Swedbank Finance Institute conducted expenditure analysis of a hypothetical middle class family with two children living in the capital cities of the Baltic States. In Vilnius, household income would be around 1300 EUR/month, while their expenditure on utilities alone would stand at around 152 EUR/month during the heating season for a typical 70 m2 flat. According to Eurostat, 82.3% of Lithuanians owned their accommodation, 10.1% lived in rented accommodation and 7.6% had mortgages. Utilities, food and transport (assuming public transport) would constitute 40% of household’s monthly income during the heating season.

Dr. Nerijus Rasburskis, ‎director of the Cogeneration Projects Division at Lietuvos Energija, Lithuanian state energy company, presented the actions taken to reduce the price of energy services from the supply and production side. To begin with Dr. Nerijus Rasburskis contrasted energy poverty with something that would qualify as energy famine referring to the on-going energy crisis in Ukraine. In the past few years Lithuania, Latvia and Estonia managed to accomplish a few national scale energy projects that have helped to reduce the effect of the so-called energy island of the Baltics – electricity power links to Finland (2014), Sweden (2015) and Poland (2015), a brand new gas terminal in Lithuania (2014). As a result of that electricity prices have decreased by 20% and natural gas prices have decreased by 30%. Nevertheless, Lithuania remains to be a net importer of energy. The country imports up to 80% of electricity and most of local electricity plants are morally and technologically out-of-date. Lithuania currently considers to build a few waste-to-energy plants that could decrease heat energy prices by a further 20%.

Photo by Paulius Stonis, Lietuvos Energija

Dr. Vygintas Sidzikauskas, independent energy expert and the chair of the Antimonopolistic Citizens’ Movement of Lithuania, focused on consumers’ perspective. District heating is well developed in Lithuania and enjoys a monopoly status. A typical flat owner connected to the district heating network does not exercise control neither over the heating levels, nor the heating bills. He emphasized that according to the EU principles, Lithuania will eventually have to comply with consumer’s right to choose in the heat energy market. Although access to energy infrastructure has improved greatly in the last few years (connection to gas, electricity networks), but energy service prices remain to be a problem. Although various mechanisms exist to ensure the public interest in this domain, he admitted we may have had a regulatory capture situation. In the recent court case, “Vilniaus Energija” was found to be charging unjust prices for heating and hot water services. The court found that inhabitants of Vilnius had been overcharged by over 100 million EUR during the period of 2010-2015. Dr. Vygintas Sidzikauskas emphasized the importance of transparency for the energy supply side and awareness raising on the energy demand side. He was optimistic about the perspectives of heat pump technologies in diversifying the heat energy sector of Lithuania. Dr. Vygintas Sidzikauskas emphasized the importance of energy efficiency calling it a fuel on its own. He quoted survey data which found that 3/4ths of Lithuanian households had already made some kind of energy efficiency investment on their own by 2009 even without state incentive programmes (most often replacing windows). He pointed to a delicate relationship between building envelope insulation and the demand for ventilation as one of the main societal concerns and obstacles in advancing building renovation programme. Ventilation equipment adds significantly to the renovation cost, and without it health of the inhabitants deteriorates.

Photo by Paulius Stonis, Lietuvos Energija

A short update on the energy poverty related legislation changes in Lithuania

The date of the seminar was very symbolic too. Lithuanian parliament has just passed a law that cancels preferential tariff of the value added tax on district heating and hot water services. This preferential tariff was launched to alleviate the heating bills temporarily in 2000, but has remained in force for over 15 years (a case of temporary becoming nearly permanent). Until now all governments found enough reasons to keep it intact due to the extent of the population affected (57% use district heating services). From June 1st 2017 value added tax for these energy services jumped from 9% to a regular 21% applied to all other goods and services in Lithuania. It is likely that the public reaction to this change will reach its peak upon the receipt of the first heating bills in autumn.

The preferential value added tariff for central heating and hot water services has been criticized by various experts for a few reasons. The preferential tariff applied to central heating and hot water discriminated against inhabitants of private houses who received no such preferential treatment and comforts of district heating. Lithuania is among TOP 5 countries in the world according to the share of inhabitants served by district heating services. The benefits of the subsidy would be shared among all users of district heating services, including those who could afford to pay the full price, but it would not be enough to ensure affordability to the most socially vulnerable. The second tier subsidies – individual household compensations would still be needed. Finally, the preferential tariff could be interpreted as a fossil fuel subsidy, that does not encourage energy efficiency investments. The news about abolished preferential tariff for district heating services has been received as good news by the energy efficiency advocates – the payback period of housing renovation has just decreased.

* See the earlier two blog posts by Nora Mzavanadze on energy poverty in Lithuania from 2014 here and here.